Nancy Milne

RESULTS THE BOARD WANTS -

It's not only about profit ....

• Perspective of a director of a financial services organisation

• Emphasis on compliance

DISCLAIMER:

My own personal views derived from:

1. Board Experience

2. Gossip

3. Legal Career

Not speaking for Comminsure or any other Board

OVERVIEW

1. Director's role and workload

2. Current issues - what is happening in Directorland

3. Centro, James Hardie

4. Regulatory environment

5. Risk Management

6. Compliance

7. Pet hates and loves

Director's Role and Workload• Stewardship

• Oversight not management

• Line between director/management role can become blurred

"The Board's function is to set the company's aims

and objectives and to ensure that they are achieved."

Sir Adrian Cadbury - Corporate Governance & Chairmanship

We need ... "directors who are business-savvy interested,

shareholder-oriented, and who will think and speak independently"

Warren Buffet 2002

Overlay of Regulation

• Imposes personal liability/responsibility on directors, eg Life Insurance Act,

WH&s, Prudential Standards

• APRA & ASIC expectations

Oversight Detailed involvement in business

Current Issues in Directorland

• Increased expectations

"Directors are expected to meet an increasing range of

obligations amidst commercial and legal expectations

of their actions."

Jeffrey Lucy AM, Chairman ASIC, August 2006

• Technology

Centro• Classification of liabilities as non-current in financial statements was a breach

by directors of s180 Corporations Act

• Highlighted issues of:

- volume of material provided to directors;

- difficulties of relying on implicit assurances provided by management and

auditors;

- need for all directors to read and understand financial statements.

James Hardie

• High Court judgment

• Held directors' liable for misleading ASX announcement

• Critical role played by minutes. Court relied on the minutes even though

directors denied their accuracy

Regulatory Environment for Financial Services Companies

HELP!

• LAGIC

• ICAAP

• FOFA

• Superannuation reforms

• Remuneration

Regulatory Environment for Financial Services Companies

HELP!

• FATCA

• Flood

• Privacy

• Dollar Disclosure

• Australian Consumer Law

• Various enquiries - compensation, schemes, Ripoll ....

How can all of this be addressed?

• Strong risk management and compliance functions

• Education sessions

• Dialogue about what is working and not working

• Papers that are succinct but informative

• Absolute transparency

• Right culture - speak up

Risk Management

• APRA's drive to embed Risk Appetite statements, development of risk

tolerances and parameters

• Less qualitative, more quantitative measures

• Applying a risk appetite lens to all decisions, eg, reinsurance program and

pricing

• What's over the horizon?

• Stress testing/scenario testing

• Separate Risk Committee?

Compliance

• Directors need to have confidence in the adequacy of the compliance system

• Education sessions on how it works

• Testing? Is it robust? Internal audit? External assessment?

• Complaints data - does it make sense in light of compliance reports? Is there

any mismatch?

• Root cause analysis of problems that emerge

• KPIs?

Compliance - Financial Statements

• Green sheets

• Directors' questionnaires

• Allow time for longer audit committee meetings

• Should all directors receive papers and/or attend audit committee meetings?

• Preparation - identification of likely issues as early as possible

• Separate sessions on actuarial reports, liabilities, valuations, FCRs etc

• Legal sign off

Pet Loves

• Clear simple, short jargon-free papers

• Hard copies of financial statements

• Sufficient time to read most, if not all, papers

- at least a week, not 24 hours!

• Frank realistic communication

• Thoughtful dialogue

• Discussion about making it better

Pet HatesCover ups

• Duplication

• Mindless or formulaic adaptation of policies etc from elsewhere

• "Desktop" risk management

• Rushed decisions

• Insufficient time to digest and think

"Pay attention to where you are going because

without meaning you might get nowhere"

A A Milne

This presentation has been prepared for the FSAA National Conference 20-22

May 2012. Opinions put forward herein are not necessarily those of FSAA

and FSAA is not responsible for those opinions.

The information presented at the seminar is of a general nature and a reader of

this presentation must seek their own independent advice before using it for

any purpose.